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DECISION No

DECISION No.396/1997/QD - NHNN1 OF DECEMBER 1, 1997 TO ISSUE THE REGULATION ON OBLIGATORY RESERVE FOR BANKS AND CREDIT ORGANISATIONS THE GOVERNOR OF THE STATE BANK

- Pursuant to the Law on Organisation of the Government of September 30,1992;

-Pursuant to the Ordinance on the State Bank and the Ordinance on Banks, Credit Organisations and Financial Companies issued under Order No. 37-LCT/HDNN8 and Order No.38-LCT/HDNN8 of May 24, 1990 of the President of the State Council of the Socialist Republic of Vietnam;

- Pursuant to Decree No.15/CP of March 2, 1993 of the Government on the tasks, powers and State management responsibilities of the Ministries and ministerial-level Agencies;

- At the proposal of the Head of the Economic Research Department;

DECIDES:

Article 1.- To issue attached to this decision the Regulation on Obligatory Reserve for Banks and Credit Organisations.

Article 2.- This Decision replaces Decision No. 260-QD/NH1 of September 19, 1995 of the Governor of the State Bank and takes effect from January 1st , 1998. The earlier provisions which are contrary to this Decision shall cease to be valid.

Article 3.- The Head of the Governor Office, the Chief Inspector, the Heads of the units under the Central State Bank, the Directors of the Bank branch offices in the provinces and cities, the Directors General (and the Directors) of the banks and credit organisations shall have to implement this Decision.

For the Governor of theState Bank

Deputy Governor

LE DUC THUY

REGULATION ON OBLIGATORY RESERVE FOR BANKS AND CREDIT ORGANISATIONS

(issued together with Decision No.396/1997/ QD - NHNN1 of December 1st, 1997 of the Governor of the State Bank)

Chapter I

GENERAL PROVISIONS

Article 1.- Obligatory reserve is the amount of money of the banks and credit organisations defined in Article 5 of this Regulation which must be kept at the fund of the banks and credit organisations and deposited at the State Bank.

Article 2.- "The determining term of the obligatory reserve" is the period of time represented by the days in each term to calculate the obligatory reserve for the maintenance term of the obligatory reserve.

Article 3.- "The maintenance term of the obligatory reserve" is the period of time represented by the days in each term to ensure that the obligatory reserve is maintained.

Article 4.- The obligatory reserve is calculated on the basis of the balance of average deposits in a day during the term multiplied by the rate of obligatory reserve stipulated by the Governor of the State Bank in each period.

Article 5.- Subject to the implementation of the regulation on Obligatory Reserve are:

- The State Commercial Bank

- The Investment and Development Bank

- The Commercial Stock Bank

- The branches of foreign banks

- The joint venture banks operating in Vietnam

- The financial companies.

The Governor of the State Bank shall decide the exemption from obligatory reserve for the banks and credit organisations with a low equity.The concrete level shall be decided by the Governor of the State bank in each period.

Article 6.- The currencies used in the obligatory reserve shall include the Vietnam Dong (VND) and foreign currencies; the obligatory reserve shall be deposited into the sight deposit accounts opened at the Transaction Bureau of the State Bank or the branches of the State bank in the provinces or cities where the bank or credit organisation has its main office.The obligatory reserve in foreign currencies shall be deposited at the Transaction Bureau of the State Bank.

Article 7.- The Transaction Bureau of the State Bank and the branches of the State Bank at the provinces and cities where the bank or credit organisation has its main office shall calculate the obligatory reserve and notify the banks and credit organisations thereof.

Article 8.- The determination of the rate and structure of the obligatory reserve and the term of the mobilised amount of deposits which require obligatory reserve and the payment of interests on the obligatory reserve of the banks and credit organizations deposited at the State Bank shall be decided by the Governor of the State Bank depending on the objective and requirement of the monetary policy in each period.

Article 9.- The consideration for approval of the demand of the banks or credit organizations to withdraw part or the whole of their obligatory reserve shall be decided by the Governor of the State Bank in case the bank or credit organization is placed in the status of special control or bankruptcy.

Chapter II

SPECIFIC STIPULATIONS ON OBLIGATORY RESERVE

Article 10.- The banks and credit organizations shall have to fully deposit their obligatory reserve at the State Bank during the term of maintenance on the following principles:

10.1- The balance of the average deposit at theState Bank and the cash and valid cheques at the funds of the banks and credit organizations in the maintenance term of the obligatory reserve shall not be lower than the obligatory reserve in the maintenance term.

10.2- The balance of deposit at the State Bank and the balance of cash and valid cheques at the funds of banks and credit organizations on each day of the maintenance term of the obligatory reserve may be lower than the obligatory reserve to be maintained in the term.

Article 11.- The obligatory reserve is calculated on the basis of the following kinds of deposit :

11.1. The deposits inVND include the following kinds (at both the main office and the branches):

- Deposits of customers:

+ Demand deposits

+ Time deposits of the kind for which obligatory reserve is required.

- Deposits of specialized ital;

- Deposits of foreign organizations and individuals;

- Savings deposits:

+ Demand deposits;

+ Time deposits of the kind for which obligatory reserve is required.

- Other savings deposits;

-Income from the issue of vouchers for deposits ,or the issue of time bonds of the kind for which obligatory reserve is required;

- Money to be managed and kept for others;

- Income from the issue of time bonds of commercial banks and the Investment and Development Bank of the kind for which obligatory reserve is required.

- Deposits in the State Treasury.

11.2- The deposits in foreign currencies include the following deposits (both at the main office and the branches):

- Deposits of customers in foreign currencies:

+ Demand deposits;

+ Time deposits of the kind for which obligatory reserve is required.

- Deposits in foreign currencies of the special- use ital;

- Deposits in foreign currencies of foreign organizations and individuals;

- Saving deposits;

- Demand deposits in foreign currencies;

- Time saving deposits the Kind for which obligatory reserve is rqeuired;

- Income from the issue of vouchers for deposits, issue of time bonds and time treasury bonds of the kind for which obligatory reserve in foreign currencies is required.

- Deposits at the State Treasury.

- Deposits of the State Bank at the banks and credit organizations.

- The deposits in foreign currencies used as basis for the calculation of obligatory reserve are the freely convertible foreign currencies which have been converted into USD for use as obligatory reserve in USD and deposited at the Transaction Bureau of the State Bank.The rate of exchange into foreign currencies to calculate the obligatory reserve is the official exchange rate announced by the State Bank on the day when the obligatory reserve takes effect.

For a number of other foreign currencies including DEM, JPY, GBP and FRF , if the deposits account for more than 50% of the total of mobilized foreign currency sources, the obligatory reserve shall be made in such currency and shall be deposited at the Transaction Bureau of the State Bank.

(See Appendix I for instruction on Article 11 for code of the attached account )

Article 12.- Method of calculating obligatory reserve for the maintenance term (applied to both VND and foreign currencies);

12.1- The determining term of obligatory reserve is the space of time from the first day to the last day of the earlier month.

12.2- The maintenance term of obligatory reserve is the space of time from the first to the last day of the current month.

12.3- On the basis of the balance of average deposits defined in Article 11 of this Regulation of the determining term of the obligatory reserve, to calculate the obligatory reserve of the maintenance term of the obligatory reserve.

12.4- The method of calculating the balance of average deposits based on the balance of each day is to add up the balance of each day in the term and divide them to the total of days in the term (see Appendix II guiding the calculation of the obligatory reserve and the balance of average deposits attached to this Regulation ).

12.5- The obligatory reserve is equal to the balance of the average deposits in the determining term of the obligatory reserve multiplied by the rate of obligatory reserve.

12.6- The rate of obligatory reserve is the percentage of the total of the deposits for which obligatory reserve is required and is stipulated by the Governor of theState Bank for each period.

Article 13- Determining excess and shortfall of obligatory reserve.

Basing itself on the report of the bank or credit organization, the Ttransaction Bureau of the State Bank or the Branch of the State Bank in the province or city where the bank or credit organisation has its main office shall compare the two quantities (A) and (B) to determine the excess or shortfall of the obligatory reserve:

A: Is the average depositof the bank or credit organization at the State Bank and the average amount of cash and valid cheques at the fund of the bank or credit organization within the maintenance term of the obligatory reserve (as guided at Appendix II)

B: Is the obligatory reserve in the maintenance term.

- Excess of obligatory reserve when A is bigger than B (A > B )

- Shortfall of obligatory reserve when A is smaller than B (A < B)

Article 14.- Handling of excess and shortfall of obligatory reserve:

14.1- In case the bank or credit organization is deficient in obligatory reserve the State Bank shall fine it at the rate defined by the Governor of the State Bank in each period. If the shortfall continues in the following maintenance term of the obligatory reserve, this bank or credit organization shall be fined two times the prescribed level.

14.2- In case the bank or credit organization has the obligatory reserve in excess, the State Bank shall refund it the excess of the obligatory reserve kept at the State Bank at the interest rate stipulated for each period.

Article 15.- Responsibility of the banks and credit organizations of the units attached to the Vietnam State Bank and the Branches of the State Bank at the provinces and cities in the implementation of the Regulation on Obligatory Reserve.If the dates stipulated in this Article fall on official holidays (sundays, holidays, new year festivals), the reports shall be sent on the following work day.

1. For the banks and credit organizations:

They shall have to send the reports on the balance of the average deposits of the determining term of the obligatory reserve as basis to calculate the obligatory reserve of the maintenance term to the Branches of the State Bank in the provinces, cities or Transaction Bureaus of the State Bank where the bank or credit organisation has its main office on the third day of each month.

2. Transaction Bureau of the State Bank:

- On the basis of the report on the balance of average deposits in the determining term sent by the banks and credit organisations under the management of the Transaction Bureau, calculations shall be made on the obligatory reserve for the maintenance term and sent to each bank and credit organization on the 5th day of each month.

- Draw up a general report performing the obligatory reserve for the banks and credit organizations under the management of the Transaction Bureau and send the report to the Vietnam State Bank (Financial Institutions Department) on the 4th day of each month.

- Settle the excess or shortfall of obligatory reserve according to Article 14 of this Regulation.

3. Branches of the State Bank in provinces and cities:

- On the basis of the report on the balance of average equites in the determinating term of the banks and credit organizations managed by the branch , to make calculations and notify the obligatory reserve for the maintenance term of each bank and credit organization on the 5th day of each month.

- Make a general report to perform the obligatory reserve for each bank and credit organization under the management of the Branch of the State Bank in the province or city and send it to theVietnam State Bank (Financial Institutions Department ) on the 4th day of each month.

- Settle the excess or shortfall of obligatory reserve according to Article 14 of this Regulation.

4. The Financial Institutions Department:

Make a general report on the performance of obligatory reserve of all the banks and credit organisations reported by the Transaction Bureau of the State Bank and the Branches of the State Bank in the provinces and cities in order to report to the Governor of the Vietnam State Bank and send a report to the Department for Economic Research and the Inspector of the State Bank on the 6th day of each month.

5. The Department for Economic Research:

Basing iteself on the development of the economic situation and the objective of the monetary policy, submit to the Governor for readjustment of the rate of the obligatory reserve, the structure of the obligatory reserve, the term of the deposits for which obligatory reserve is required, the interest rate of the fines on the shortfall of the obligatory reserve, the payment of interest and the interest rate for the excess of the obligatory reserve deposited at the State Bank in order to make them conform with each period.

6. The Accountancy- Finance Department:

To guide the method of accounting according to the accountancy accounts related to the obligatory reserve to make it conform with this Regulation.

7. The Inspector of the State Bank:

Shall have to elaborate the Regulation on Fining and cooperate with the Financial Institutions Department in inspecting and supervising the performance of obligatory reserve by the banks and credit organizations, to detect in time the banks and credit organizations which do not implement the Regulationon Obligatory Reserve; to take stringent and timely measures to deal with the offending banks and credit organizations and to help them carry out the obligatory reserve as prescribed.

Article 16.- Complaints and competence in settlement:

16.1- The banks and credit organizations are entitled to complain against inappropriate decisions about the implementation of the Regulation on Obligatory Reserve. The complaint shall be sent to the Central State Bank (the Financial Institutions Department).

16.2- Five days at the latest after receiving the complaint on obligatory reserve of a bank or credit organisation, the Head of the Financial Institutions Department of the Central State Bank must reply in writing to the concerned bank or credit organization. Pending a settlement, the said bank or credit organization must abide by the Regulation on Obligatory Reserve of the State Bank.

Article 17.- Handling of violations:

17.1- The violations of the stipulations on information and report shall be sanctioned under the sanctioning regulations issued by the Governor of the State Bank.

17.2- The fines for violations of the regulation on obligatory reserve shall comply with Article 14 of this Regulation. For the shortfall of the obligatory reserve, the State Bank shall impose sanction for the shortfall at the level prescribed by the Governor of the State Bank for each period. If the shortfall continues in the subsequent maintenance term, the concerned bank or credit organization shall be subject to a fine double the level prescribed by the Governor of the State Bank for each period.

Chapter III

FINAL PROVISION

Article 18.- Any amendment or supplement to the provisions in this Regulation shall be decided by the Governor of the State Bank.

For the Governor of the State Bank

Deputy Governor

LE DUC THUY

APPENDIX I

CODES OF ACCOUNTS OF DEPOSITS FOR WHICH OBLIGATORY RESERVE IS REQUIRED

Codes of accounts

For deposits in VND:

- Deposits of customers:

+ Demand deposits: 3611

+ Time deposits for which obligatory reserve is required (part of account 3612)

- Deposits of special-use ital (3613)

- Deposits of foreign organizations and individuals (3614)

- Savings deposits:

+ Demand deposits (3711)

+ Time deposits which require obligatory reserve.

- Other savings deposits (3719)

- Income from the issue of deposit vouchers and time bonds (441, 442, 449)

- Money for management or keeping (381)

- Income from the issue of treasury bonds of the Commercial Bank and the Investment and Development Bank (441, 442, 449)

- Deposits at the State Treasury (2121 )

For deposits in foreign currencies:

- Deposits of customers in foreign currencies:

+ Demand deposits (3621)

+ Time deposits which requires obligatory reserve (3622)

- Deposits for special-use ital in foreign currencies (3623 )

- Deposits in foreign currencies of foreign organizations and individuals (3624)

- Savings deposits :

+ Demand deposits in foreign currencies (3721)

+ Time deposits in foreign currencies which require obligatory reserve (3722)

- Income from the issue of vouchers of deposits and the issue of time bonds and treasury bonds in foreign currencies which require obligatory reserve (441, 442, 449).

- Deposits in the State Treasury (2122 )

- Deposits of the State Bank at the bank and credit organization (207)

APPENDIX II

EXAMPLES FOR THE CALCULATION OF OBLIGATORY RESERVE AND AVERAGE DEPOSITS OF THE BANKS AND CREDIT ORGANIZATIONS AT THESTATE BANK ACCORDING TO ARTICLE 12 OF THE REGULATION ON OBLIGATORY RESERVE

Example: For the maintenance term of July , the method of calculation shall be as follows:

- Formula for the calculation of the obligatory reserve in the maintenance term:

Amount of Balance of

obligatory average deposits

reserve in the = in a day from June x Percentage of obligatory reserve

maintenance 1st to June 30

term of July (determining term)

Method of calculating the balance of average deposit in determining period:

Balance Total of deposits from June1st to June 30

of deposit = -------------------------------------------------

in one day 30

- Formula for calculating average deposit in maintenance term of obligatory reserve at the State Bank:

Average deposit Total of deposits from july 1st to July 31

in maintenance = -------------------------------------------------term at the 31

State Bank

- Formula for calculating the average of cash and valid cheques duruing the maintenance term of obligatory reserve at the funds of the bank and credit organization:

Average cash

and valid cheques

in maintenance Total of cash and valid cheques from July 1st to July 31

term deposited = --------------------------------------------------------------------

at the funds 31

of the bank

and credit

organization

- The structure of obligatory reserve of the banks and credit organizations shall be determined on the basis of the Decision of the Governor of the State Bank on the rate and and structure of the obligatory reserve for the banks and credit organizations in each period.

Example: The Governor of the State Bank decides that the rate of obligatory reserve is 10% and the mimimum structure of the obligatory reserve is 70% which must be deposited on the account of sight deposits at the State Bank while the maximum rate is 30% in cash and valid cheques at the funds of the bank or credit organization, then the obligatory reserve that must be maintained and the structure of the obligatory reserve and the settlement of excess or shortfall of the obligation reserve shall be as follows:

Case 1: If the actual average rate of cash and valid cheques at the fund of the bank or credit organization is bigger than 30% of the obligatory reserve , 30% shall be the rate adopted.

Case 2: If the actuall average rate of cash and valid cheques at the fund of the bank or credit organisation is lower than 30% of the obligatory reserve then the actual figure shall be adopted.

Example in Case I: Supposing that the bank or credit organization (X) has an average deposit of 3,000 billion Dong which requires an obligatory reserve in a given period (June 1997). The average deposit in the maintenance term (July, 1997) at the State Bank is 220 billlion Dong, the average cash and valid cheques in the maintenance term (July 1997) at the fund of the Bank (X) is 100 billion Dong. The obligatory reserve in the maintenance term (July 1997) and the excess and shortfall of the obligatory reserve (July 1997) of the Bank (X) shall be determined as follows:

The obligatory reserve to be maintained in July 1997 is :

The average obligatory reserve to be maintained in the term = 3,000 billion Dong x 10% = 300 billion Dong

The amount to be deposited at the State Bank is 210 billion Dong , the amount to be deposited at the cash fund and valid cheques is 90 billion Dong.

Calculation of excess and shortfall of obligatory reserve in the maintenance term in July 1997 :

In reality the unit deposits 220 billion Dong at the State Bank, the remaining fund is 100 billion Dong in cash and valid cheques. Thus, according to regulation Bank(X) has 10 billion Dong of obligatory reserve in excess (220 billion Dong -210 billion Dong). The unit shall be refunded 10 billion Dong by the State Bank as excess of obligatory reserve.

Supposing that the Governor of the State Bank decides that the inrerest rate for the excess of obligatory reserve is 0.2% per month, Bank (X) shall receive in the maintenance term of July:

10 billion Dong x 0.2% x 31 days

Total of interest= ------------------------------------------- = 20,000,000 Dong

31 days

Thus, Bank(X) shall receive 20,000,000 Dong as interest for the excess of the obligatory reserve in the maintenance term of July 1997.

Example of case 2: Supposing that the Bank or Credit Organization (X) has 3,000 billion Dong as average deposit which require obligatory reserve in the determining term (June 1997). The average deposit in the maintenance term (July 1997) at the State bank is 220 billion Dong. The real average of the cash and valid cheques in the maintenance term (july 1997) at the fund of Bank (X) is 78 billion Dong. The obligatory reserve in the maintenance term (July 1997) and the excess and shortfall of the obligatory reserve (July 1997) of Bank (X) shall be determined as follows:

Obligatory reserve to be maintained in July 1997:

Obligatory reserve to be maintained in the term = 3,000 billion Dong x 10 % = 300 billion Dong.

The amount to be deposited at the State Bank is 210 billion Dong , the amount to be deposited at the cash and valid cheques fund is 90 billion Dong

Calculation of excess and shortfall of obligatory reserve in the maintenance term in July 1997:

The real amount remaining at the cash and valid cheque fund is 78 billion Dong that is a shortfall of 12 billion Dong compared to the requirement (90 billion Dong - 78 billion Dong). As prescribed to assure the obligatory reserve in the maintenance term in July 1997, the obligatory reserve deposited at the State Bank must be 222 billion dong (210 billion Dong + 12 billion Dong ), but in reality the unit deposits only 220 billion dong. Thus, in the maintenance term of July 1997 the shortfall in obligatory reserve is 2 billion Dong (222 billion Dong - 220 billion Dong).

Handling of shortfall in obligatory reserve of Bank (X):

Supposing that the Governor of theState Bank decides that the fine represents 200% of the interest in the re-loan of 0.9% per month, Bank(X) shall have to bear a fine for the shortfall of obligatory reserve in the maintenance term of July 1997 as follows:

2 billionDong x 0.9%x 200% x 31 days

Total fine=-------------------------------------------------- = 36,000,000 Dong

31 days

Thus, Bank (X) shall have to pay a fine of 36,000,000 Dong for the shortfall of obligatory reserve in the maintenance term of July 1997.

1.Obligatory reserva in maintenance term already notified

1.1 In Vietnam Dong

In which : obligatory reserve deposited at State bank (70%)

Cash and valid cheques (30 %):

1.2 In foreign currencies

In which: obligatory reserve deposited at State banks (70%)

Cash and valid cheques (30%)

2. Actual obligatory reserve already maintained :

2.1. In Vietnam Dong (maintained in the term)

In which: - Actual average deposit at State bank

- average cash and valid cheques at fund of banks and credit organizations

2.2 In foreign currrencies (maintained in the term)

In which: actual average deposits at State bank

Average cash and cheques actually deposited at the funds of the banks and credit iorganizations

3. Difference resulting from excess (+) or shortfall (-) of bligatory reserve

3.1. In case the actual average cash and valid cheques is smaller (<) than prescribed

3.1.1- In Vietnam Dong (2.1- 1.1 )

3.1.2 In foreign currencies (2.2 - 1.2)

3.2- In case actual average cash and valid cheques are bigger than or equal

to the prescribed level

3.2.1- In Vietnam Dong = actual average deposit at State Bank minus (-) obligatory reserve at State Bank in Vietnam Dong

3.2.2- In foreign currencies - actuall average deposit in foreign currencies at State bank minus (-) obligatory reserve at State bank in foreign currencies.-